Tag: advantages of bill of exchange

Questions Related to advantages of bill of exchange

On 1.3.2006 X draws a bill on Y for 3 months for Rs20,000. On 4.5.2006, Y pays the bill to X at 12% discount. The amount of discount will be __________.

elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

  1. Rs. 200

  2. Rs. 400

  3. Rs. 600

  4. Rs. 100

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Correct Option: A

When a bill of exchange is drawn by one of co-venturer on the other co-venturer, discount charges are borne by drawee.

elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

  1. True

  2. False

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Correct Option: B

Cancelling the original bill and drawing a fresh acceptance is known as __________.

elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

  1. Retiring under rebate

  2. Renewal

  3. Discounting

  4. Bill sent to bank for collection

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Correct Option: B
Explanation:

Sometimes the acceptor of the bill foresees that it may be difficult to meet the obligation of the bill on maturity and may, therefore, approach the drawer with the request for extension of time for payment.  In such cases the old bill is cancelled and fresh bill with new terms of payment is drawn it is called as renewal of bill. 

While preparing P/L account, rebate on bills discounted to be provided shall be deducted from discount received is ________.

elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

  1. Schedule 16

  2. Schedule 15

  3. Schedule 14

  4. Schedule 13

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Correct Option: D
Explanation:

Rebate on Bills Discounted is also known as Discount Received in Advance, or, Unexpired Discount or, Discount Received but not earned.

Its treatment is same as we do in the case of Interest Received in Advance.

Rebate on bills discounted is also called_____.

elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

  1. Unexpired discount

  2. Earned discount

  3. Expired discount

  4. Received discount

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Correct Option: A
Explanation:

Rebate on Bills Discounted is also known as Discount Received in Advance, or, Unexpired Discount or, Discount Received but not earned. Its treatment is same as we do in the case of Interest Received in Advance.

Encashment of bill before due date ________________.

elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

  1. Retirement of bill

  2. Discounting of bill

  3. Honouring of bill

  4. Endorsing of bill

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Correct Option: B
Explanation:

When bill is sold to the bank at a discounted rate it is called discounting the bill of exchange.
As cash is received on discounting the bill it is also called encashment.

Which of the following is not a correct statement ?

elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

  1. A bill given to a creditor is called Bill Payable

  2. Del-Credere commission is normally calculated o total sales

  3. Discount at the time of retirement of a Bill is a given for the drawee

  4. The owner of a shop feels that he has made a loss due to closing stock being zero

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Correct Option: D

Mr. X accepted a bill of exchange of $Rs. 1500$ drawn by Y and payable in $3$ months. He got it discounted from bank at $2$% discount. The discounting charges amounted to __________.

elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

  1. $30$

  2. $25$

  3. $7.5$

  4. $22$

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Correct Option: A
Explanation:

A bill is drawn by the drawer(debtor) on the drawee (creditor) so as to give him a sense of  security for the receivables. But in case the drawer does not want to wait till the maturity period of the bill or rather he has some urgent need of funds, what he will do is get the bill discounted by a bank. When the bill is discounted by the bank, it pays the drawer an amount after deducting a certain percentage, because they are giving the drawer the funds he needs before the date of maturity of the bill and the discount is a type of fee for their service. So here in this case the amount of discount is calculated as follows:

Discount = $Rs. 1500$ x $2/100$= $Rs. 30$
Remember here the discount percentage is in not expressed as per annum so do not multiply it with the number of months. 

A draw a bill of exchange on $B$ for $Rs. 3,000$ for $4$ months. He got it discounted with a Bank at $12$% p.a. The discount charged by the bank will be _________.

elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

  1. $Rs. 120$

  2. $Rs. 360$

  3. $Rs. 125$

  4. $Rs. 154$

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Correct Option: A

R draws a bill of exchange on S for $Rs. 8,000$ for $4$ months. He got it discounted with a Bank at $12$% p.a. The net proceeds to be received from bank will be _______.

elements of book keeping and accountancy commission,brokerage and discount advantages of bill of exchange definition, characteristics and parties of bills of exchange simple transactions related to bills of exchange

  1. $Rs. 7900$

  2. $Rs. 7680$

  3. $Rs. 8000$

  4. $Rs. 7650$

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Correct Option: B